Commercial Finance Brokers Survey

The Business Money 2005 review

Your industry journal has built its successful reputation by telling many prospective advertisers that their promotions will not be seen by their future customers. But they will be seen by the people who will advise those future customers to buy their products.

It is a fact that the commercial finance sector has a distribution infrastructure that is heavily intermediary dependent. There are many other access points for some lenders but the intermediary is here to stay.

It is pleasing to record that over the last decade we have seen much about which to enthuse in the direction taken by commercial loan brokers. The way in which the National Association of Commercial Finance Brokers has imposed standards accepted throughout the industry, the way in which some high class firms have become established in their specialist fields of buy-to-let, factoring and healthcare.

The steps taken by Keith Heron, chief executive of NACFB, to prepare the sector for self regulation demonstrate a far-sightedness worthy of all of our support and, if successful, will make doing business a great deal easier in the future.

It will require sponsors to pay more to establish a system of qualification for brokers, compliance visits to ensure the maintenance of standards and a policy of only accepting introductions from correctly accredited introducers. The whole industry must be aware that to put its own house into an acceptable order will be infinitely preferable to an imposed solution and those opposing a move to meet the challenges posed by the environment in which we work today must be urged by their contemporaries to act in the broad interests of the whole industry. I am, as I have often stated, no fan of regulation and its ability to be applied practically to the rough and tumble world of business finance is questionable indeed. A mature recognition of this appears to be abroad at the FSA so let us seize the opportunity.

Let us now move to the views of the brokers responding to our 2005 survey. We are in the happy position of having known many of our respondents for more than a decade.

They constitute a high quality group and we will publish a selection of comments to go with the statistics. Please note that not all of the responses will total 100% in summary because more than one answer can be offered to some questions.

Lawyers do not emerge too well from the answers, though there is a distinction too. Lenders’ lawyers are generally praised. They should be.

Backsides get kicked if an interest-earning asset is slow arriving on the books. It is the borrowers’ side that gives problems with too many high street, first floor, conveyancing and will-drafting whizz kids fancying a fee but finding themselves out of their depth. Nothing has changed since my day. How about good brokers compiling a panel of good lawyers to act for their clients? It cannot be worse than having the clueless holding up a transaction.

Hunters are a new dimension in business banking. Overall, the reaction is favourable, good quality brokers finding that hunters would take their deals at an earlier stage and do some groundwork for them. One former senior banker complained however that hunters were allowing some lesser brokers who might once have passed a proposal to them to deal directly with the bank. He added in the second line however that efficiency by the clearing banks in processing the deals had considerably improved.

Let us take a look at the numbers.

We found a huge mix of qualifications though two predominated and, not surprisingly, one of the categories is former bankers:

Qualifications
FCIB/ACIB/AIB (Scot)	24%
CeMAP	16%

 The depth of experience revealed under the: “How long have you been working in your present role?” question is reassuring with a good mix of old hands and the new entrants necessary to ensure the continuing health of the sector.

Years
0 – 5	30%
6 – 10	21%
11 – 15	23%
16+	26%

Regional variations were evident in some choices. Under the heading of: “Recommended to deal with – general”, the top three were:

Banks
The Royal Bank of Scotland	21%
Barclays	12%
Bank of Scotland	12%

We delved a little deeper and isolated those brokers that were factoring only, or who listed factoring as one of their areas of operation. Regional variations were prominent here too the companies spoken of, in alphabetical order were:acto

Factors

Bibby

Cattles

Close

IGF

Lloyds TSB

RDM

Similarly the: “Recommended to deal with” section identified some respected commercial mortgage lenders:

Commercial mortgages

Abbey

Anglo Irish

Commercial First

Mortgage Guarantee

Nationwide

Norwich and Peterborough

Skipton

United Trust

Answering the question, “Do you receive introductions from…” and listing some sources, many brokers enjoy multi-sourced business: introductions from

Received introductions from
Accountants	80%
High street banks	49%
Solicitors	26%
Merchant/Commercial Banks	17%

Leads from solicitors were rare in my banking days, there must be more of them around today. Here we will take a look at some individual comments regarding the legal profession. Overall the message was:’ solicitors

Lenders’ solicitors
Good	Understand deadlines
Good, efficient, thorough	Commercial specialists are invaluable

Other than this the comments were unfavourable though many identified the old chestnut that the solicitor acting for the borrower was often a non-specialist at commercial deals and out of their depth.solicitors

Borrowers’ solicitors
Slow	Expensive
Arrogant	Bad communicators

One respondent mentioned favourably a willingness by lawyers to allow indemnity policies to form part of the title. I would add a word of warning here. I believe, though I am open to correction, that solicitors receive commission on sales of indemnity policies. When I bought my present property, a former farm on the banks of the River Parrett, my lawyer tried to get me to spend around £1,300 because an old right of way to drive cattle over my land to and from the field across the river was revealed. I said: “No” because a part of the right of way was a bridge that collapsed in 1913 and of which no part remains. As my consent would have been required to rebuild the bridge it was a zero risk decision with which, fortunately, the valuer for Cheltenham and Gloucester agreed. My lawyer was not happy and this confirms the opinion expressed by one respondent that many lawyers today cannot make a pragmatic decision though, once again, maybe those fed on a diet of residential property conveyancing have rarely to assess a real commercial or legal risk.

Since we published our last broker survey a new element has moved into the environment in relation to intermediaries: hunters. Some banks, such as Lloyds TSB, came late to the party here, though research suggests that the latest converts lack nothing in zeal.

We will look at numbers and then we will examine individual brokers’ assessments of hunter effectiveness. We asked brokers to list one to four the most effective banks for hunters and nominated by respondents we see:

Position 1 returned:
NatWest	28%
The Royal Bank of Scotland	24%
Bank of Scotland	20%
Barclays	8%
HSBC	4%

 

Position 2 returned:
Lloyds TSB	24%
The Royal Bank of Scotland	12%
NatWest	12%

Totalling the four positions gave:

The Royal Bank of Scotland	51%
NatWest	49%
Bank of Scotland	43%
Lloyds TSB	34%
HSBC	15%
Barclays	13%

 

Some points to ponder here:

For Bank of Scotland to achieve a 43% awareness count demonstrates the effectiveness of its business model given its size relative to the other high street banks.

Lloyds TSB must be delighted too in that its hunter programme was launched later than the leading players yet one third of our respondents were happy to list them under the “most effective hunter service” banner.

Some individual quotes make for reflection by the banks. Under the heading, “What difference have clearing bank hunters made to you”:
– “Has increased my capacity”
– “More keen to seek me out to source part of a deal they cannot do”
– “I haven’t been found by many of them” (a broker with 186 deals totalling £25m so far already in 2005!)
– “None” (several times, with one adding “another layer to get through”)
 – “Bloody nuisance”
– “More attractive terms for clients
– more proposals now bankable”
– “All change after initial momentum period”
– “Have created a switching culture and the absurdity of valuing new business more than established customers”
– “Customers do not like being canvassed by inexperienced reps”
– “They have taken leads which would have come our way – but much improved responses to deals” (highlighted Yorkshire Bank as well as RBS)
– “Taken away some of the work required in presenting deals” So, a mixed bag of responses and clearly, not all brokers see the advent of hunters as the second coming.

The question on the economic outlook for the next 18 months brought a generally sober response. Most thought conditions would be tougher, some saw this as an opportunity. The final question enquired as to the biggest challenge facing UK plc today. It got a mixed bag of responses, once again, and we list some of them:
– “Increasing taxes and red tape. EU legislation is making it difficult to stay competitive”
– “Slow down in growth”
– “Oil prices, higher taxes, stagnant retail and property, balance of payments deficit”
– “Regulation is killing UK plc”
– “To really, really learn what makes SMEs tick”
– “Keeping manufacturing in the UK”
– “To keep our communities cohesive and united”
– “Finding an opposition party to rid us of the most morally bankrupt government I can recall”
– “Reduce cost of manufacturing”
– “Inability to get rid of poor performers”
– “Pension problems”
– “Emerging economies”
– “Rising levels of government spending”
– “Cheap imports”

May I thank everyone who took the trouble to respond. It is pleasing to note the spread of experience and qualification to be found in our vibrant intermediary sector. Hunters have made a difference but, as ever, it is quality that counts more than quantity. Despite this new element it is significant that non-clearing bank providers, i.e. independents, still play a big part in funding deals from intermediaries especially in the invoice finance and commercial mortgage sectors. While this continues a fine tradition, it is pleasing to see the success of new entrants demonstrating that in a healthy and competitive marketplace, there is not only room for newcomers, some, like Commercial First, have rewritten some of the rule book.

The less charitable may claim that one or two factors do not so much rewrite the rule book as forget that one exists but this would be an unkind comment on their ability to make a deal happen and some of them are brilliantly innovative in this respect.

Deals like this come from brokers and the contribution that these people make to the forward progress of SMEs is not so much unrecognised as completely missed by many. It is vital that the sector remains competent and vibrant. The NACFB has achieved so much in the last twelve years and we should applaud it.

The association is now fostering the move towards self-regulation in commercial finance and if brokers, and their lenders, wish the sector to remain flexible, competitive and competent it is time to give NACFB all of the support that it can. NatWest has made the first move by seconding a manager to the association to help with the many tasks that promoting self-regulation will bring. May we look to the other banks to follow suit?

Editor